The lifetime value of repeat customers

Your customers are the reason why your company exists. Without customers, without addressing their needs, you don't have a business.

But customers are rather hard to get, and expensive. If you deliver commodity products that everyone needs, you've got plenty of competition and margins are razor thin. If you instead focus on specialty services needed by few customers, your difficulty is finding and engaging those people.

In either case, it's critical to keep those customers, purchase after purchase, contract after contract, and to help them to recommend you to their family, friends, and colleagues.

We all know this. But how much is enough? Should you spare no expense to retain even the most difficult clients?

This is why we explore the concept of the lifetime value of a customer.

Return on investment

Like any assessment of value, we'll look at two elements: The investment you have to make, and the return that you get because of that investment.

• Costs. Let's start with the obvious ones: The materials and labor that it takes to deliver your product or service. Next, we add the expense of acquiring that customer. Finally, it takes some effort and perhaps tangible cost to retain the